East West Bancorp, Inc. (EWBC)

Q2 2010 Earnings Call Transcript

July 28, 2010 11:30 am ET


Kelly Adams – VP, Corporate Communications

Dominic Ng – Chairman and CEO

Julia Gouw – President and COO

Irene Oh – EVP and CFO


Ken Zerbe – Morgan Stanley

Mike Zaremski – Credit Suisse

Joe Morford – RBC

Aaron Deer – Sandler O'Neill

Brett Rabatin – Sterne, Agee

Lana Chan – BMO Capital Markets



Good morning and welcome to the East West Bancorp second quarter 2010 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note that this is being recorded. I would now like to turn the conference over to Ms. Kelly Adams. Please go ahead.

Kelly Adams

Thank you. Good morning, everyone, and thank you for joining us to review the financial results of the East West Bancorp for the second quarter of 2010. Here to review the results are Dominic Ng, chairman and chief executive officer; Julia Gouw, president and chief operating officer; and, Irene Oh, executive vice president and chief financial officer. We will then open the call to questions.

First, we would like to caution you that during the course of this call, management may make projections or other forward-looking statements regarding events or future financial performance of the company within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may differ materially from the actual results due to a number of risks and uncertainties.

For a more detailed description of factors that affect the company’s operating results, please refer you to the filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31st, 2009.

Today’s call is also being recorded and will be available in replay format at eastwestbank.com and streetevents.com. I will now turn the call over to Dominic.

Dominic Ng

Thank you, Kelly. Good morning, and thank you all for joining us in today’s call. We’re pleased to announce yesterday that East West reported earnings for the second quarter of $36.3 million or $0.21 per diluted share, $11.4 million or $0.08 higher than the first quarter of 2010.

I’m going to touch on just a few highlights for the quarter, and ask Julia and Irene to discuss our results in more detail. For East West to continue on an upward trend during the second quarter, reflecting credit quality metrics, gross low-cost core deposits, and a stable net interest margin.

Also during the second quarter, we acquired Washington First International Bank in our second FDIC assisted transaction. Although smaller in size, this transaction was nearly accretive to earnings. And we expected that. The future opportunities from this acquisition for market share expansion and operating efficiencies will be beneficial for East West.

Asset quality continues to trend positively for East West. For the third quarter in a row, East West had a non-performing asset-to-total asset ratio of under 1%, substantially better than many of our peer banks. Additionally, the provision for loan losses decreased 28%. Our net charge offs decreased 14% from the previous quarter. Further, we have experienced a decline in loan delinquency levels. Specifically, we have noticed a decline in 30-day to 60-day and 60-day to 90-day delinquent commercial real estate loans, which further demonstrated the ability of this portfolio.

Our seasoned commercial real estate portfolio continues to perform well, with only $18.3 million in non-performing loans or only 0.52% of this portfolio. As expected, we’ve also noticed a sharp decline in 30-day to 60-day and 60-day to 90-day delinquent residential construction loans as our concentration in this portfolio has diminished. We think these factors are a good indicator that credit costs will continue to decline in the future as we have indicated in our earnings guidance.

I would also like to point out that we have (inaudible) progress in our goal to increase our commercial lending portfolio. Quarter-over-quarter, commercial and trade finance loans have increased $84.1 million, which represents a 6% since March 31st, 2010, both an annualized growth rate of 24%.

Now, moving on to deposits, total deposits grew to $14.9 billion, up $312 million from March 31st. During the quarter, East West acquired $395 million of deposits from the acquisition of Washington First International Bank, reduced broker deposits by $175 million, and increased deposit through out legacy retail and commercial platforms by over $90 million.

More significantly, quarter-to-date, core deposits grew to a record $8.2 billion, an increase of $441 million or 6% from previous quarters or again an annualized increase of 24%. With the increase in core deposits, the cost of deposits has also decreased down to 80 basis points for the first quarter, an improvement from 93 basis points in the first quarter and 1.47% in the second quarter of 2009.

We have now reported three consecutive quarters of earnings. Overall, we believe that we have made good progress in the second quarter of 2010. We completed the systems integration of United Commercial Bank, acquired Washington First International Bank, and have gained total clarity and visibility on the stabilization of our credit quantity.

In our earnings release, we provided guidance for the second quarter of 2010. We currently estimate that diluted earnings per share for the second quarter of 2010 will be in a range $0.19 to $0.22 per diluted share. This EPS guidance is based on the following assumptions, flat balance sheet growth; a stable interest rate environment; and, a net interest margin between 3.98% to 4.02%, excluding the impact of discount accretion on tougher loans' dispositions and recovery.

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